Environment, Development and Growth: U.S.-Mexico Cooperation in Renewable Energies. Duncan Wood

Transcription

1 Environment, Development and Growth: U.S.-Mexico Cooperation in Renewable Energies Duncan Wood Working Paper May 2010

2 Acknowledgements First, I would like to thank Andrew Selee, Director of the Mexico Institute at the WWICS, for his constant support in this and other projects on which we have collaborated. It is thanks to Andrew s tireless devotion to the cause of advancing understanding of Mexico and US Mexico relations that the Mexico Institute is the leading organization in its field. A big thank you also goes out to Rob Donnelly and Katie Putnam for their help in this project. Second, my thanks to Sidney Weintraub and the Simon Chair at the Center for Strategic and International Studies (CSIS) for hosting me during my time in Washington, for providing me with an office and administrative support, and for teaching me so much about political economy in the real world. Alaina Dyne of CSIS was also of great help and constant cheer. Third, I owe Joe Dukert a vote of thanks for his support in this project, for his suggestions on changes to the document and for introducing me to the Washington DC area energy policy community. Thanks also to Johanna Mendelson Forman for her interest and support in issues of renewable energy. Fourth, to my colleagues at the ITAM, Omar and Sergio Romero Hernandez, who have taught me so much about renewable energy and who have inspired me by their hard work and intelligence. Fifth, thanks to all the institutions and individuals who helped me with this publication, especially to Sandia Laboratories, to Andrea Lockwood and Rhiannon Davies at the Department of Energy, for their help with information include in this report, to the National Renewable Energy Laboratories, to Stirling Energy Systems and to Francisco M. Calderón González of SEISA, inc., for granting me permission to reproduce photos and images. Lastly, I wish to thank the ongoing support I have received from the ITAM and also publically acknowledge that this work has been supported by the Asociación Mexicana de Cultura, A.C. The Woodrow Wilson Center's Mexico Institute would like to thank the Embassy of Mexico in the United States, the Embassy of the United States in Mexico, the Council of State Governments West, and USAID's Mexico Mission for their support of efforts to build dialogue on renewable energy. About the Author Duncan Wood is Full Professor, Director of the Program in International Relations and Director of the Canadian Studies Program at the Instituto Tecnológico Autónomo de México (ITAM) in Mexico City. He is also a researcher in the Centro de Derecho Económico Internacional (CDEI) at ITAM. He studied in the UK and Canada, receiving his PhD in Political Studies from Queen s University, Canada in He is a member of the Mexican National Research System (level 2), a member of the editorial board of Foreign Affairs Latinoamerica and has been an editorial advisor to Reforma newspaper. In 2007, he was a non resident Fulbright Fellow. Between 2007 and 2009, he was technical secretary of the Red Mexicana de Energia, a group of experts in the area of energy policy in Mexico. He is a Senior Associate at the Center for Strategic and International Studies (CSIS) in Washington DC, writing his next book on Mexican, Venezuelan and Brazilian energy policy, to be published by Lynne Rienner Press in His research focuses on Mexican and Latin American energy policy, including renewable energy; North American relations; and banking supervision and the political economy of international finance. 2

3 Environment, Development and Growth: U.S. Mexico Cooperation in Renewable Energies Executive Summary The need for integration of North American renewable energy markets is real and immediate. Although the region has extensive renewable energy resources, their geographic distribution, and their nature (intermittent and of variable strength), mean that it makes sense to integrate both supply and distribution across national borders. This has long been the case with energy; electricity grids have seen extensive integration across the US northern border, and pipelines have brought Canadian natural gas and oil to the United States for a long time. As US demand for renewable energy increases, satisfying that demand will require importing energy from its neighbors, and Mexico offers a reliable and relatively low cost supply from its wind energy farms in the north. The history of cooperation between Mexico and the United States in renewable energy is surprisingly long and multi faceted and it has been a vital, albeit unheralded, dimension to bilateral relations and a significant boost to rural and later national development for over 18 years. Cooperation in some areas goes back even further than that, with geothermal energy collaboration extending back to the 1970s. Although it is now seen as crucial in the context of efforts to mitigate climate change, renewable energy in Mexico has and always has been seen as a development tool, helping to bring energy and employment to marginalized areas that are not connected to the national electricity grid. Beginning in the 1990s, USAID has invested in long term programs seeking to increase opportunities for renewable energy in Mexico, focusing mainly on small projects in rural areas but also increasingly on projects that a having a far reaching impact on Mexico s energy profile. The investments made by the US government in mapping Mexico s wind energy resources in Oaxaca and other parts of the country have helped to develop a new source of energy for the national grid and for private consumption, and a new source of employment, investment, technical expertise and economic growth. Although public entities have also benefited from the development of the wind energy sector, it is predominantly private companies that have been responsible for the sector s impressive growth in recent years. The generation of wind energy for self supply by private firms has been one of the great successes of the Oaxacan wind projects, and it is likely that this will be repeated in the north of the country. But it is not just wind energy that has benefitted from bilateral cooperation. In almost every sector connected with renewable energy, the complementarities between the two nations, particularly at the border, have generated opportunities for working together to both develop the industry within Mexico and to satisfy US demand for renewable energy. In the geothermal sector, electricity produced in Baja California has been exported to California since the 1970s. With regards to solar energy, cooperation has produced valuable programs that have been adopted by Mexican government ministries to apply solar technologies to remote areas to assist in agricultural production. The obvious and glaring exception has been the biofuels sector, in which only disparate interest from the private sector, but no meaningful agency to agency cooperation has been seen. It remains a sector ripe for development, particularly given Mexico s climate and the potential for plants such as jatropha, succulents high in sugar, and of course sugar cane itself. 3

4 This report argues that US involvement in the Mexican renewable energy sector has paid substantial dividends in terms of improving access to energy for poorer communities and in terms of building up the wind energy sector. In the future, it is likely that both Mexico and the US will benefit from imports of Mexican wind energy into California, and from the expansion of renewable energy opportunities to the south of the border. Further, this report argues that one of the factors that currently prevent the realization of the potential for integration of renewable energy markets is the absence of a comprehensive bilateral agenda for developing renewable energy on the border. Although the Border Governors Conference and the North American Development Bank have made efforts in this direction, it will require meaningful executive leadership on this issue to make meaningful progress. The emphasis by the US Department of State on a New Border Vision, announced in March 2010, provides an opportunity to do just that. In addition to the report s numerous recommendations specifically focusing on geothermal, wind, solar and biofuels, two general recommendations stand out. First, it is vital that financing opportunities are increased for renewable energy projects. This can be achieved through bilateral mechanisms at the border, through international mechanisms such as the Global Environment Facility (GEF) and through the Mexican government s renewable energy fund, announced in November The second general policy recommendation is to enhance current programs designed to build human capital in renewable energy. Through the Mexico Renewable Energy Program, the work of the USAID and through the US Mexico TIES program, investments in human capital are bringing long term benefits to Mexico s renewable energy sector, and more should be done in this regard, both through facilitating more and closer collaboration between university level programs and through support for Mexico based training programs in the issue area. Renewable energy stands out as one of the most positive items on the bilateral agenda between Mexico and the US today. Whereas the media coverage of Mexico is dominated by drugs, migration and violence, the potential for Mexican renewable energy to contribute to development, employment and growth there, as well as helping to satisfy growing demand for clean energy in the US, should be seen as a truly positive example of what can be achieved through sustained and well thought out bilateral cooperation. With continued attention from agencies and firms on both sides of the border, the Mexican renewable energy sector holds enormous potential to contribute even more in the future. 4

5 Introduction As the world debates the future of climate change in international forums, most countries are implementing their own mitigation strategies at the national and local levels while at the same time looking to their neighbors for opportunities to establish regional plans for climate change response and energy security. In Europe, region wide policy and carbon emissions reduction strategies have been in place for a number of years. Ideas for regional carbon markets in North America have been discussed for a long time, but little has been achieved. In April of 2009, however, Presidents Obama and Calderon, of the United States and Mexico respectively, signed the U.S. Mexico Bilateral Framework on Clean Energy and Climate Change. The two leaders agreed on the importance of promoting clean energy, combating climate change and the value of collaborating to reach these goals. Some observers in the US may have been surprised by this development because the energy issue of which most foreign observers immediately think with regards to Mexico is, of course, oil. The continuing problems of PEMEX and declining production from its mature fields have been one of the most important issues coming out of the country in recent years. However, although it is most often seen as a classic hydrocarbon nation, Mexico has in recent years emerged as a leading country in the region, and more broadly in the developing world, in the areas of clean energy and emissions controls. As President Felipe Calderon has attempted to present himself to the world as a leader in climate change initiatives (most recently in Copenhagen in December 2009) with the idea for a Fondo Verde (Green Fund), many Mexicans expressed surprise that their country could be seen as a leader given the overwhelming national political and economic importance given to oil. But Calderon was building on a reputation established in successive international meetings, most notably in Bali in 2007 when Mexico was ranked 4 th out of all nations for its commitment to mitigating climate change, by the policy group Germanwatch, in their Climate Change Performance Index (CCPI) 1. This reputation had been won by a variety of initiatives from the local to the national level, from both the public and the private sectors. Though Mexico has since slipped down the rankings to 11 th place, it still maintains a favorable image in terms of its commitment to mitigating climate change, and ranks third out of all newly industrializing countries. In order to meet the expectations that President Calderon has worked so hard to build up concerning climate change mitigation strategies, Mexico now has to invest heavily in both energy efficiency projects and in the development of a renewable energy sector in the country that takes advantage of Mexico s considerable resources. Large scale investment by the state, by the private sector both national and foreign, reforms to the legal framework surrounding renewable energy, and a change in the mentality of Mexican political and economic elites is needed in order to make this happen, but there is good reason to be optimistic. The potential is certainly there in Mexico, and there is considerable interest from foreign investors and governments. This study examines one of the most important and potentially lucrative dimensions of the growth of the renewable energy sector in Mexico, namely bilateral cooperation between Mexico and the United 1 Madrigal, Alexis, Bali Meeting Ends; Mexico Emerges as a Leader on Climate Change, 5

6 States. The 2009 bilateral framework should be seen in the context of an emerging trend in Mexico towards renewable energy, and as recognition of the need for the United States to take advantage of this if it is to meet its own carbon emissions reduction goals. The long border shared by the two countries, so often seen as a point of conflict due to the thorny issues of migration, drugs and security, holds the potential to benefit both states through the trade in renewable energy from wind, geothermal, biomass and solar sources. But the promise of collaboration in the sector goes far beyond the border. The US has been engaged with Mexico in RE issues for over 15 years now on multiple levels, and this has brought tangible results that have had a significant impact on both Mexico and on bilateral relations. US engagement with Mexico in the area of renewable energy has been driven by three main concerns. First, the US government has focused much of its efforts over the last 15 years on using renewable energy applications to improve living standards and business opportunities for Mexicans living in rural areas. Second, the contribution of RE to climate change mitigation strategies has become a central pillar in US work in the area. Mexico s impressive potential for RE offers great hope for the reduction of current dependence on fossil fuels. Third, the possibility of satisfying the US growing demand for RE from Mexican sources has not been lost on decision makers in both countries, and collaborative work has progressed toward this goal. Although the second and third of these concerns have been dominant in recent discussions of renewable energy, the first should not be overlooked. In fact it has played a much more important role in the history of cooperation in renewable energy and has had a profound impact on the lives of Mexicans. Renewable energy technologies can give access to electricity to rural communities that lack connections to the national grid. Such access is fundamental in many ways to granting a basic standard of living, but it is particularly important in enhancing the prospects for small and medium sized enterprises (SMEs). Providing electricity to a small farmer can give him the capacity to better irrigate his fields, to work later into the evening once he has electric light, to refrigerate perishable goods such as fruits, fish and meat so that he does not have to take his goods to market each and every day, and allows the farmer to think beyond the mere harvest of produce to products that have a higher degree of value added. The argument of this paper is that, though many of the opportunities created by bilateral cooperation in the past have gone unexploited by US actors, the long term impact of this cooperation has been highly beneficial, both for Mexico as a country, producing jobs, new sources of alternative energy, and economic opportunities. For the United States, the development of the RE sector in Mexico offers hope to states such California as they seek to satisfy growing demand for renewable energy. Continued cooperation in the areas of geothermal wind, solar, and biofuels are therefore vital if Mexico s true potential is to be fully realized. Renewable energy and the global challenge It is by now common knowledge that the world is facing a climate change crisis caused by the effects of fossil fuel driven industrialization. A significant rise in global temperatures, combined with more severe weather conditions, more frequent floods and droughts, are bringing a paradigm shift to the way we think about our relationship with the planet. For the first time in over 150 years policy makers are thinking seriously about decreasing dependency on fossil fuels and looking for alternatives that may be more expensive in the short and medium terms, but ultimately more sustainable. 6

7 All of this has happened at the same time as two other, related phenomena. The first is that the global population is reaching new highs and by will total over 9 billion people. Experts predict that 85% of the world s population will be located in the developing world, which will mean a rapidly growing demand for goods and for energy. Both of these factors will result in a need to increase energy efficiency as well as find new sources of energy. What s more, this massive jump in population will coincide not only with climate change but also with increasingly difficult conditions for hydrocarbons exploration and production. As most of the world s easy oil has already been discovered, oil companies and nation states are turning to alternatives such a non conventional oil reserves (tar sands, complex fields) and reserves that in the past would have been considered unrecoverable, such as in very deep ocean waters. Furthermore, political conditions in many of the world s oil rich regions are uncertain, unstable and often unfriendly to private oil companies and to the countries of the West. Climate change and natural disasters The urgency of finding alternatives to fossil fuels has been confirmed in recent years by mounting scientific evidence that we are undergoing a noticeable anthropogenic shift in the world s weather and temperature. Not only are a range of indicators showing that the planet is warming, but the retreat of the polar ice caps, the melting of glaciers, and most importantly in the short term extreme weather conditions and increased incidence of natural disasters have highlighted the consequences of maintaining the status quo in our patterns of energy consumption and industrial development. It is estimated that we have experienced a 1 degree Celsius rise in global temperatures over the past 100 years and that by the end of the current century global temperatures may have risen by as much 7 or 8 degrees. Even with the reduction in greenhouse gas emissions that is contemplated by the most ambitious mitigation strategies, global temperatures may rise by as much as 6%. This would have a dramatic and disastrous impact on both developed and developing nations and will threaten the existence of both humans and animal and plant species. Though the connection between man made greenhouse gases and global warming was denied for many years by industry and governments alike, it has now been accepted that something must be done to reduce the amount of greenhouse gases released into the atmosphere. Given that 86% of all global energy comes from fossil fuels, and that these fossil fuels produce 27,000,000,000 tons of CO 2 emissions annually, finding alternative sources of energy is a crucial component of climate change mitigation strategies. The rise in global population With global population expected to exceed the 9 billion mark by 2040, and with estimates of global carrying capacity (that is the total number of people that the planet can support under given technological and social conditions) set at around 10 billion, demographics have once again become a central element in world politics. Population matters for both energy supplies and climate change. As the global population rises there is a greater demand for both energy and for consumer goods, which in turn means higher levels of energy consumption. More importantly, as the global population gets wealthier on average, demand will jump again. At the income level of around 6000 dollars per capita, individuals and families consider the purchase of an automobile and this drives up demand for hydrocarbons and in particular gasoline. From this the impact on climate change should become clear. Rising populations also impact on climate in other ways, with increased demand for agricultural land, for example, which means the clearing of 7

8 forests. Large scale agriculture to produce sufficient food also means the unleashing of massive amounts of greenhouse gases from rice paddies and cow and pig farming. Indeed the methane that is released from these sources has a greater impact per ton than CO 2. The energy squeeze At the same time as climate change has become an issue at the top of the international agenda, declining oil reserves around the world and rising demand for oil and gas (in particular in Asia), has produced enormous volatility in energy markets in recent years, and provides an insight into the long term challenge of providing energy to the global economy. As easy oil is used up, oil companies have to look deeper, further and in non conventional sources to discover new reserves. What s more, much of the world s remaining oil reserves are located in unstable, hostile or unpredictable political environments. Although coal and uranium remain in plentiful supply, their environmental impact is such that most nations are trying to turn away from their use. When we think that the economic development of the last 200 years has been driven by the increasingly intense use of energy, first from coal then from oil, the consequences of facing constrictions in energy supplies should become obvious. Slower economic growth, a degraded standard of living in the developed world, increased international and local conflict for resources, and the need for rapid and drastic technological change will be unavoidable. Renewable sources, on the other hand, offer an alternative that is almost without limit. Although at the present time they represent a tiny fraction of the world s energy use, their potential is sufficient that in the long term they can completely replace non renewable sources. What is interesting and particularly appealing about renewable energy is that the technology needed to exploit it already exists, in either a developmental state or fully matured. This means that, with adequate levels of investment, effective government policies and the necessary cultural and attitudinal shifts in society, renewable energy stands to advance rapidly and significantly in the next few years. Sustainable and clean development The joining of these three phenomena, climate change caused by human activity, rising populations and the energy squeeze, serves to put further importance on the concept of sustainable development. A term coined in the late 1980s in the Brundtland report, titled Our Common Future sustainable development focuses on the notion that today s development must not compromise the ability of future generations to meet their own development goals. This means less emphasis on non renewable resources and on development policies that destroy or irrevocably damage the environment. Sustainable development has become a central theme and has been mainstreamed into government and international organization policy across the world in the two decades since the Brundtland report. This new understanding of the limitations of development has meant that the search for alternative sources of energy has become more and more important in recent years. All areas of renewable energy generation have seen impressive growth, albeit from a very small initial position, across the globe. Of course some of these forms of energy generation have been around for more than a hundred years, but the application of new designs and technologies has seen a dramatic improvement in their efficiency as well as the realization of new potential. Hydroelectric power, for example, has a long history going back to the 19 th century, with the earliest power plants completed in the 1860s. In the mid twentieth century hydroelectric power flourished, with massive investments in mega projects in both the industrialized states and, through funding from 8

9 organizations such as the World Bank, in the developing world. With huge investments in China in recent years, hydroelectric power currently makes up 20% of electricity generation capacity in the world. Paraguay is 100% dependent on hydroelectric generation and exports hydroelectric power to its neighbor, and other countries, such as Brazil, Canada and Norway, depend overwhelmingly on dams for their electricity generation. Wind power too has a long history, going back to the use of windmills for grinding grains and pumping water in early modern times. The generation of electricity from wind dates to the late 19 th century, although its use remained limited throughout the 20 th century until the application of new materials and designs in the late 1970s in Denmark, which then spread around the world. In recent years, rapid innovation in design and new lighter materials has made huge turbines possible, with a subsequent rise in power generation capacity, enhanced by greatly improved system control. The rise in global wind power capacity in recent years has been remarkable: in 2008, installed capacity rose by 28%, with another 31% rise in According to the Global Wind Energy Council: the world s wind power capacity grew by 31% in 2009, adding 37.5 GW to bring total installations up to GW. A third of these additions were made in China, which experienced yet another year of over 100% growth. 2 The power of the sun has been harnessed for thousands of years by human communities for drying, heating and lighting, and there were solar powered distillation projects in Chile in the 1870s to produce drinking water, but the use of solar power to generate electricity is relatively recent. Electricity can be generated from the sun s power in two main ways: from photovoltaic cells, which generate electricity from the interaction between the sun s radiation and chemicals contained in photovoltaic cells; and secondly from solar thermal plants, where the heat of the sun is harnessed to generate steam which them drives turbines to produce electricity. In recent years, biofuels have received a lot of media, policy and academic attention as industries, governments and societies have sought to reduce their dependence on hydrocarbon based liquid fuels. Ethanol is perhaps the best known of these, and it is important to recognize that in the 19 th century it was regularly used as a heating source. In the early 20 th century ethanol briefly challenged gasoline as a fuel source for automobiles, although the low cost of petroleum rapidly overcame this potential. Massive production of ethanol in Brazil, the US and the European Union in recent years has brought back the prospect of a central role for ethanol in transportation, although relative cost remains a challenge, as does the question of grain production for ethanol use impacting food prices, directly or indirectly. But ethanol is only part of the biofuels picture. Biodiesel, derived from a variety of sources, is emerging as an important complement to regular diesel, and offers potentially huge benefits to poorer countries. Biogas (methane) projects abound at the present time, as governments attempt to harness harmful emissions from agricultural, industrial and municipal sources to be used to generate electricity, although financing limitations suggest that most of these projects will not advance past the planning stage in the 2 Global wind power boom continues despite economic woes, Global Wind Energy Council, 15 th February 2010, 9

10 near future. The potential for this in Mexico is great, however, particularly with a view to exporting the electricity generated from agricultural and municipal waste in border communities. The North American context The North American economic region is experiencing an impact from all of the issues mentioned above. Climate change, population growth, tightening energy markets and the need for sustainable development pose a series of challenges for policy makers at both the national and regional levels. A number of studies, some dating from the early years of the 2000s, have called for the creation of North American renewable energy markets, with adequate integration of electricity transmission systems, funding programs and intergovernmental cooperation 3. The demand for integration of RE markets is urgent. As nations, states and municipalities struggle to meet carbon emissions targets, they are looking to their neighbors to satisfy demand for RE and to benefit from synergies across sectors. Unfortunately, we are still a long way away from such integration. There is still a lack of knowledge about the full extent of renewable energy resources across the region and differences in regulatory regimes, both within and between countries remains an obstacle. A comprehensive study and database of renewable energy resources is a vital component for developing RE in the region that was attempted in 2003 by the North American Commission on Environmental Cooperation (CEC) 4, but which sadly came to nothing. However, it is encouraging that significant progress has been made in recent years on both the technological and the regulatory fronts, and there is significant interest from the private sector in exploiting renewable energy across borders in the region. The industry in Mexico Mexico enjoys one of the world s most privileged positions in terms of its potential to generate renewable energy. Possessing tropical, temperate and arid climates, very long coastlines, areas of high wind velocity and stability, geothermal activity, and high levels of solar irradiation, Mexico is naturally extremely well endowed. However there has been very little development of the renewable sector in Mexico until very recently (with the exception of hydro electric and geothermal electricity generation). This lack of development can be explained by: The dominance of energy thinking by issues related to oil and, to a lesser extent, gas The absence of any consideration of energy security issues due to the abundance of hydrocarbons A lack of awareness on the part of the executive branch and legislators of the potential for renewable energy generation A low level of environmental consciousness on the part of government, society and the private sector The absence of economic and financial incentives for public or private sector development of renewable resources This is not to say that there have not been actors in Mexico who have pushed for the construction and consolidation of a national renewable energy sector. Within civil society and higher education, a wide range of groups have been very active for years in the development and application of renewable 3 North American Commission for Environmental Cooperation, Building the renewable energy market in North America, 2004, North American Commission for Environmental Cooperation, Fostering Renewable Electricity Markets in North America, 2007, 4 Henn, Patrick, North American Renewable Energy Database: NARED Technical Project Report, technical report_en.pdf 10

11 energy technologies. Furthermore, there are a small number of private businesses that have been active in a variety of renewable energy technologies since the mid to late 1990s. 5 However, unlike countries such as Brazil, the renewable energy sector remained relatively underdeveloped in Mexico until quite recently. A major impulse to building up capacity has come from the growing concern over climate change. The Mexican Ministry of Energy (Secretaria de Energía or SENER) has identified two major axes in the national climate change mitigation strategy. The first concerns energy efficiency and savings, the second increasing the use of renewable energy sources. Both of these axes are well developed in terms of concrete policy initiatives although funding for meaningful programs is still scarce. Also important have been the prospect of lucrative carbon credits for renewable energy projects, and President Felipe Calderon s reforms to renewable energy regulation and the creation of financing mechanisms At the present time there is growing interest in the sector and, for the first time, important incentives in the form of financing and market opportunities. A national fund was created in the 2008 energy reforms, putting aside 3 billion pesos a year to help the renewable sector. The Ley para el Aprovechamiento de Energías Renovables y el Financiamiento de la Transición Energética (LAEFERTE), which came out of 2008 s energy reforms, set up a fund of almost US$250 million a year for the promotion of renewable energy. At the federal level, Mexico has taken the lead in Latin America in the struggle to improve energy efficiency, with multiple projects across the country aimed at improving the ratio of energy per unit of GDP. For a number of years the Federal government agency formerly known as CONAE (Consejo Nacional del Ahorro Energetico), and now known as the CONUEE (Consejo Nacional para el Uso Eficiente de la Energia) has promoted energy savings and energy efficiency in both domestic and industrial and commercial contexts. Successful programs such as that promoting the use of low energy light bulbs have appealed to Mexican citizens for the money as well as energy saving aspects involved. In addition to policy innovation, Mexico has emerged as a leader in the region in wind energy. Best known is the La Ventosa wind park in the southern state of Oaxaca, but wind projects are underway in a number of states. Of particular interest for this report is the development of the La Rumorosa wind field in Baja California which shows enormous potential for exports of wind energy to the US. What s more, Baja California is not the only state with such potential for export, and work is underway identifying the scope and extent of wind corridors near the northern border. Mexico also shows great potential as a producer of solar energy too, with highly favorable geography and irradiation levels in many parts of the country, but particularly in the northern states. Both photovoltaic and solar thermal energy show great promise, both for domestic consumption and for export. Public and private sector from the United States has helped to explore and develop this potential, and will continue to be important in driving the business forward. Bio fuel production too, though low at the time of writing, is an area that should develop rapidly in the coming years. The recent announcement of permits for ethanol and biodiesel purchases by PEMEX marks a first important step towards the scaling up of biofuel production and utilization in Mexico, even though civil society organizations and small private ventures have been producing ethanol and biodiesel for a number of years. 5 Total Energy Systems, a Mexico City based energy company, for example, has been active in the application of renewable energy technologies since the late 1990s. 11

12 Table 1. Mexico s Renewable Energy Capacity 2008 Technology Capacity (MW) % Total Annual (GWh) % Total Wind power % % CFE Wind power % % Private Producers Small hydro % % CFE Small hydro % % LFC Small hydro % % private producers Geothermal % % CFE Biomass & % % biogas Table created by author using data from the Comision Federal de Electricidad, Unidades Generadoras en Operacion, 2008, Sistema Electrico Nacional (Servicio Publico), 20 0 Edicion, CFE, March The scale of Mexico s advance in renewable energy can be seen by a simple data comparison. In 2006, of total electricity generating capacity, 22% came from renewable sources, but hydroelectric power dominated this segment, and was responsible for 19% of the total. It is notable that of the other renewable energy sources, wind only made up 0.004% of total generating capacity and geothermal only 2%. By 2008 this renewable quotient (not counting large scale hydro) had risen to 3%, and its growth is predicted to continue to around 8% by the end of Of this amount, wind will grow most rapidly in percentage terms, to 0.09% in 2008 and to almost 3% by 2012, including both CFE facilities and private producers. In total the capacity of the renewable energy sector in Mexico (not counting large scale hydro electric) will grow from less than 2 gigawatts (GW) in 2008 to almost 5 GW in 2012, according to SENER figures. This rapid growth is being fueled by both demand for cleaner electricity and an interest in investment coming from private and public sources. Early cooperative mechanisms Programa de Cooperación en Energía Renovable (PROCER) In November 1991, Sandia Laboratories of the United States, a multi program laboratory operated by Sandia Corporation, a subsidiary of Lockheed Martin, began work on a program to engage Mexican public and private entities in the area of renewable energy. Sponsored in part by the US Department of Energy (DOE) and the US Committee on Renewable Energy Commerce and Trade (CORECT), the PROCER focused on developing awareness of renewable energy applications, particularly among institutions, technical training and building local capabilities and networks to encourage sustainability. The program was highly successful in reaching diverse groups across Mexico and also played a role in monitoring renewable energy applicati9ons put in place by state and federal governments. One example is that of Xcalak, a small fishing village in Quintana Roo that had never been connected to the national grid and 12

13 had had a number of abortive experiments to establish reliable electricity supply with diesel generators. Through Mexican state and federal government funding, and with technical assistance from PROCER, a hybrid PV wind project was initiated and was then monitored by PROCER partners. Not only did the monitoring help to guide the development of this project, but the data gathered was instrumental in designing HOMER, an NREL designed a computer model that simplifies the task of evaluating design options for both off grid and grid connected power systems for remote, stand alone, and distributed generation (DG) applications. 6 The Mexico Renewable Energy Program (MREP) In 1994, USAID began to take an interest in the PROCER experience and negotiated a cooperative agreement with the Department of Energy and Sandia Laboratories. Thus began a program to promote renewable energy in Mexico for the purposes of development. Focusing on rural communities without access to the national electricity grid, USAID worked with a number of US and Mexican partners to promote the appropriate and sustainable use of renewable energy technologies in Mexico with the goals of: Increasing the quality and reduce the costs of renewable energy technologies Increasing the use of clean energy sources to combat global climate change Increasing the economic, social and health standards in rural off grid households and communities by utilizing renewable energy systems for productive applications In addition to these 3 goals, USAID aimed to promote the US renewable energy industry in Mexico and to develop partnerships between US and Mexican firms in the sector. The MREP incorporated a number of major actors in the implementation of its projects: The US Department of Energy (DOE) Sandia National Laboratories (Sandia) Southwest Technological Development Institute (SWTDI) National Renewable Energy Laboratory (NREL) Winrock International, a nonprofit organization focusing on resource sustainability and development Ecoturismo y Nuevas Tecnologías (EyNT), a business set up in 1994 to promote the use of renewable energy applications Valdez Engineering, a Mexican engineering firm Centro de Investigación en Energía (CIE), a research center within the UNAM Asociación Nacional de Energía Solar (ANES), a Mexican NGO promoting solar energy. In addition, institutionalized cooperation between the MREP and federal government ministries in Mexico, such as the energy ministry (SENER), the agricultural ministry (SAGARPA), the education ministry (SEP), the environmental ministry (SEMARNAT) and the national indigenous institute (INI) ensured widespread acceptance and replication of MREP projects at the national level. The sustainability of the program s goals was to be ensured though long term partnerships with incountry organizations, the implementation of pilot projects to institutionalize renewable energy use, the building of technical capacity and the provision of technical assistance to assure quality. Originally intended to last for five years, the program was extended twice, first in 1999 and then in 2004, and has 6 National Renewable Energy Laboratories (NREL), HOMER, 13

14 focused on four main sectors in which to apply renewable energy technologies: agriculture (working with SAGARPA and FIRCO), protected environmental areas (with SEMARNAT and CONANP), distance education (working with SEP and DGTVE) and finally rural electrification (working with SENER and INI). The major focus for the MREP throughout its existence has been solar energy, with an emphasis on photovoltaic (PV) technologies, but from small scale wind applications were also promoted. In the agricultural sector, PV applications have been used to power water pumping systems and cooling and refrigeration. The importance of both of these is obvious: a farmer who can irrigate his fields more efficiently and reliably has more chance of guaranteeing harvests, and a dairy farmer, for example, who can cool and refrigerate his or her milk, will lose less of his product through spoilage before it gets to market. 7 The importance of RE applications for remote rural locations that are not connected to the grid, and whose connection is not likely in the near future, is made clear by this quote from Sandia s final report of the MREP: Bringing electricity to remote communities makes it possible to illuminate homes, refrigerate food, and establish home businesses for a more productive and better quality of life. Solar lighting enables rural families to engage in productive activities at home during evening hours. Modest amounts of solar electricity can be used to power village micro enterprises such as electric sewing machines, refrigerators, and battery chargers. 8 The direct and far reaching link between energy and development can be seen here; bringing electricity to remote communities can be revolutionary for both domestic and productive life. Fishing communities were now able to use PV technologies to refrigerate their fish: thanks to a PV powered icemaker employed by the MREP, they could now keep fish fresh and not need to go to market every day, saving valuable time that could be better employed in productive activities. In 1998 Sandia noted the success of the MREP by highlighting the experience of cattle farmers in the north of the country who had benefited from the program by installing solar power water pumps for irrigation. By allowing their cattle to graze year round, rather than having to purchase feed, and by ensuring that the cows had sufficient drinking water, ranchers saved significant amounts of money, and protected themselves from some of the effects of drought. In the same report, Sandia asserted, Tremendous opportunities exist in Mexico for growth in the use of renewable energy technologies. According to some estimates, more than five million Mexicans do not have access to grid electricity in 88,000 villages, while more than 100,000 rural communities are in need of potable drinking water. More than 600,000 rural ranches need water for livestock or irrigation. Given Mexico's abundant solar and wind resources, these rural needs represent a potential market for renewable energy technologies of over $1 billion. 9 FIRCO (Fideicomiso de Riesgo Compartido), the Mexican government s program to promote small scale agribusiness has been an active and highly complementary partner in the MREP. In fact a perusal of FIRCO activities in recent years shows the importance of renewable energy technologies as a central 7 Azteca Solar: The Mexico Renewable Energy Program , USDOE, USAID, SNL, NMSU, Report on activities, Ibid., p Sandia Laboratories, Sandia program encourages use of renewable energy technologies in eight Mexican states, /mexico_story.htm 14

15 element in its work. A Train the Trainer program that ran from was instrumental in building capacity within FIRCO to continue the work of the MREP far into the future. The impact of the MREP on FIRCO is undeniable the work that continues today in PV applications can be traced back to the beginning of the MREP in The institutionalization of the program within a Mexican federal agency can be cited as one of the greatest successes of the MREP. To quote Sandia Laboratories: A significant outcome of the FIRCO/Sandia partnership is the level of support that the Mexican federal government has shown for the implementation of renewable energy technologies in other agricultural related programs. This has required formalizing and enacting basic policy changes within several government programs in which FIRCO plays a role, such as Alianza para el Campo (Alliance for the Countryside), Empleo Temporal (Temporary Employment), and Sequías (Drought). Each one is a federal program aimed at increasing agricultural production, and each has enacted fundamental changes to include the demonstration of PV and other renewable energy technologies. 11 The MREP s projects bringing RE technologies to other areas are also important to mention, as they have promoted ecotourism, distance education and the use of solar power in homes and small businesses lacking access to the grid. The replication of MREP sponsored projects by Mexican government agencies can be seen across the board, with thousands of installations exceeding the hundreds put in place by the MREP. As a final report on the MREP from Sandia states: From the perspective of the DOE R&D program and US industry, the MREP experience has provided invaluable data and insight on why end users adopt (or reject) solar technologies and how solar projects abroad can be replicated on a much larger scale by others. MREP also has been an important proving ground for technology deployment and evaluation under trying tropical conditions. The Mexico experience has also shown how critical financing mechanisms are to the rapid growth of the global solar market. In the end, our program is committed to focusing on innovations that will significantly reduce the initial and life cycle costs of solar components and systems, while improving overall system reliability and user acceptance. 12 Until 2005, the MREP continued to focus on PV applications in remote areas, but USAID also began to work closely with national actors in the area of wind energy. This work is covered in more detail in a later section. Since 2008, USAID has adopted a new approach to promoting renewable energy in Mexico. Now working through its competitiveness program, USAID has sought to promote renewable energy along three main axes. First, it has funded training and outreach programs to promote the use of micro financing for renewable energy projects. Second, USAID has begun to examine the role of the municipio (municipal authority) as a promoter of renewable energy, with a particular focus on local electricity selfsupply projects. Third, the agency is active in promoting dialog with key actors along a number of lines, including conferences, training and publications. In this third axis, USAID has funded a book examining the current state of renewable energy in Mexico, which will be used as a text for training policy makers and legislative staff in Mexico FIRCO, Proyecto de Energia Renovable, 11 Azteca Solar, op.cit., p Azteca Solar, p Wood, Duncan, Omar Romero, Sergio Romero, eds., (2010), Energias Renovables en Mexico, forthcoming. 15

16 The role of the DOE in institutionalizing cooperation in renewable energies has also been crucial. The signing in 1998 of a US Mexico Bilateral Energy Cooperation Agreement included a focus on renewable energy. The agreement, extended in 2001 for two years, helped to bring together personnel from DOE, Sandia and the Mexican CONAE, to encourage joint research, resource sharing, training and the promotion of RE use by both public and private sectors. The agreement was to be superseded by the Trilateral Agreement for Cooperation in Energy Science and Technology (including Canada), however this agreement took a number of years to negotiate, and was eventually signed in It will be in force for an initial period of five years and will renew automatically every five years afterward if all parties agree. However, it seems as though bilateral mechanisms have worked much better than their trilateral counterpart, and the April 2009 U.S. Mexico Bilateral Framework on Clean Energy and Climate Change offers hope of continued work and renewed vigor along those lines. Geothermal energy Mexico s longest standing, non hydroelectric source of renewable energy is to be found in the geothermal sector. Because of the country s highly volatile geology and active tectonic plates, Mexico has estimated geothermal electricity potential second in the world only to Indonesia, and produces over 3% of Mexican electricity output from this source. Installed capacity stands at around 958 MW, the fourth largest in the world behind the United States (2687 MW), Indonesia (1970 MW) and the Philippines (992 MW) currently have higher geothermal installed capacity. This potential has been estimated in recent years as being anywhere between 8 and 13 GW, although with existing technologies and cost structures, a more conservative estimate may be the most likely economically viable upper limit. 14 The remaining generating potential lies mainly in low to middle temperature sites which, though the technology is still undeveloped in Mexico, could be used for private and industrial purposes, such as greenhouse heating, spas, and aquaculture. The potential of Mexico s geothermal resources was first considered in 1937 by a young engineer named Luis F. de Anda, who joined the CFE and began work on exploring Mexico s geothermal capacity. By the late 1950s de Anda had put together a multidisciplinary research team to locate, delineate, and characterize the geothermal system at Cerro Prieto field, Baja California, in order to develop a clear idea of the potential for extracting steam from Mexico s geothermal fields, thus inspiring the CFE to invest in further research. 15 This led to a pilot project in Pathe, Hidalgo, with a capacity of 3.5 MW in 1959, but more importantly to the identification of an important high temperature geothermal system which went into production in The Cerro Prieto facility, located in the Mexicali Valley, Baja California, Mexico, about 19 miles south of the U.S. border, began producing geothermal electricity and became Mexico's first and still largest geothermal generating plant. 14 Iglesias, Eduardo, Victor Arrellano &Rodolfo Joaquin Torres, Estimación del recurso y prospectiva tecnológica de la geotermia en México, Instituto de Investigación Eléctrica, Informe IIE/11/3753/I 01/P March 2005, 15 José Luis Quijano León and Luis C.A. Gutiérrez Negrín, An Unfinished Journey: 30 Years of Geothermal Electric Generation in Mexico, GRC Bulletin, 2003, 16

17 Model of a geothermal generating plant (source: CFE, The success of the Cerro Prieto development and the area s geologic similarity to the geothermal fields of neighboring Imperial Valley in southern California, led to the signing, in 1977, of a 5 year agreement between CFE and the U.S. Energy R&D Administration to conduct a joint study of Cerro Prieto. Under this agreement, the two countries committed themselves to collaborative activities to Develop a complete knowledge of the nature and magnitude of this energy resource, to research the best way to exploit it in accordance with the long term needs of the Mexican energy program and to determine the impact of this on the subsoil surrounding the field. 16 The CFE worked closely with Lawrence Berkeley Laboratory (LBL), who coordinated U.S. technical activities. This brought close collaboration between the two sides and led to the signing of a later DOE/CFE agreement to study Cerro Prieto and other geothermal areas in Mexico. The exchange of expertise and information increased understanding on both sides of the border and can be seen as a model for fruitful bilateral technical collaboration. 16 United States of America and Mexico, Agreement relating to geothermal energy research and development (with annex). Signed at Mexico City on 21 July 1977, 17

18 Mexico s known geothermal fields Reproduced with permission from: Arellano, V.M., Iglesias, E.R., García, A., La energía geotérmica: Una opción tecnológica y económicamente madura, Boletín IIE, Vol. 32, Núm. 3, (ISSN ), julio septiembre 2008, pp The Cerro Prieto facility is a huge plant with four plants of 110 MW each, four of 37.5 MW, four of 25 MW and one of 30 MW, in total comprising 149 wells and an installed capacity of 720 MW. The facility was subject to a large scale upgrade in 2000, when the four units of plant IV (for a total of 100 MW) came online. Cerro Prieto is responsible for producing 46.37% of the electricity consumed in Baja California Geotermoelectrica, Comisión Federal de electricidad (CFE), 18

19 Cerro Prieto is important because it is one of the great success stories of Mexican electricity production. Not only does the facility produce clean electricity, it does so at such a scale that there is sufficient surplus power generated to allow for exports to the United States. Until 1996, electricity produced at Cerro Prieto was exported to San Diego, but these exports ceased when electricity demand in Baja California grew to the point where no surplus existed. Since then, CFE investments in generating capacity in the region have permitted a surplus to re emerge, and on the 3 rd of February 2009, the CFE signed an agreement with the Los Angeles Department of Water and Power (LADWP) to allow for the purchase of up to 100 MW of electricity from Cerro Prieto. 18 In fact, exports of electricity from Cerro Prieto had begun a few weeks before the agreement, with the city s utility buying 25 megawatts of around the clock geothermal power in December and 50 megawatts in January. 19 Los Angeles Mayor, Antonio Villaraigosa, said that the deal is monumental because it allows the department to transition to using more renewable power. The deal enables LADWP to reach a milestone of 10 percent renewable power supply, on track for 20 percent renewables by Whether or not Los Angeles in particular, or California more generally, can achieve their renewable energy goals, remains to be seen. Lee Kanon Alpert, general manager and president of LADWP; Antonio Villaraigosa, Mayor of Los Angeles; Alfredo Elías Ayub, Director General of the Comisión Federal de Electricidad; Juan Marcos Gutiérrez, Consul General of México in Los Angeles; and David Nahai, managing director of LADWP. Source: Although the exact value of the deal for the CFE is not known, it is estimated that the company with earn as much as $100 million in 2010 from clean electricity exports to the US and to Central America (through the newly finished interconnection there) L.A. department of Water & Power reaches monumental renewables deal 19 Zahniser, David Green Power from Mexico, Los Angeles Times, February 3 rd 2009, power fro.html 20 Ibid. 21 La Comisión Federal de Electricidad exportará energía renovable a Los Ángeles, Empresa Exterior, February 2009, comision federal de electricidad de mexicoexportara energia renovable a los angeles.html 19

20 It is estimated that Cerro Prieto will enter a period of steady decline in coming years, leading to a reduction in generating capacity of around 125 MW by Although the field is not fully exploited, the proximity of local communities limits the possibilities for expansion of the facility. CFE is engaged in a search for other sources of geothermal activity nearby, which should lead to new capacity coming online to replace the predicted decline, although it is unlikely that an expansion of current capacity will be seen. Already the CFE plans to expand production at Cerro Prieto by as much as 100 MW, having launched a tender for the Cerro Prieto V geothermal plant. In addition to Cerro Prieto, there are currently three other large geothermal generating plants in Mexico: Los Azufres, Los Humeros and Las Tres Virgenes bringing total national installed geothermalelectric capacity to 953 MW. 22 This amounts to around 3.23% of total electricity generation in Mexico, but there is ample room for growth. According to the CFE geothermal energy potential in Mexico would allow the installation of another 2,400 MW 23 and feasibility studies have proved a potential for national reserves of 3,650 MW, whose generation could provide more than 12% of total electricity generation. Much of this depends on technological advances, but the cost of geothermal power, at around USD cents per kwh, makes it highly competitive as a source of electricity. 24 What is lacking still is a more accurate estimate of Mexico s geothermal resources, and an adequate mapping of their location. Already US firms are benefitting from the geothermal sector in Mexico, providing services and maintenance. Working in collaboration with Mexican partners, US companies such as San Jose, California, based Calpine Corp has participated in geothermal steam production and well drilling, and repair projects at the Cerro Prieto plant, for example. With the expansion of the sector, such opportunities look set to grow in tandem 22 Gutiérrez Negrin, L.C.A. and Quijano Leon, J.L. Update of geothermics in Mexico, Proceedings of the World Geothermal Congress, 2005, Antalya Turkey, April, SENER (2006), Energías Renovables para el Desarrollo Sustentable en México, Secretaria de Energia, p. 64, SENER GTZ_ISBN.pdf 24 Ibid. 20